Kanarek Family Agency

Common Types of Life Insurance

Term life insurance provides coverage at a fixed premium for a specific period of time, known as the term. When the term ends, the previous rate is no longer guaranteed, and the insured must either obtain new coverage—often at different rates—or go without coverage. If the insured dies during the term, the policy pays a death benefit to the beneficiary. Term life insurance is generally the most affordable way to secure a substantial death benefit for a set period.

Whole life insurance is a permanent policy that stays in force for the insured’s entire lifetime, as long as required premiums are paid. Most whole life policies require premiums every year and include a guaranteed death benefit along with a cash value component.

Universal life insurance is a type of permanent coverage where premiums exceeding the cost of insurance are added to the policy’s cash value. The cash value earns interest monthly, while the policy is also charged monthly for the cost of insurance and any fees. Interest rates are set by the insurer but include a guaranteed minimum, typically 2%. When tied to a financial index such as stocks or bonds, the policy becomes an Equity Indexed Universal Life contract.

Variable Universal Life (VUL) insurance is a permanent policy that builds cash value, which can be invested in a variety of separate accounts similar to mutual funds. The “variable” aspect refers to the investment options, which fluctuate with market performance. The “universal” aspect refers to flexible premium payments, which can range from zero in a given month to the maximum allowed by IRS rules for life insurance.